Skip to main content

Taxation, Dividends, and Share Repurchases: Taking Evidence Global

  • Marcus Jacob (a1) and Martin Jacob (a2)

We compile a comprehensive international dividend and capital gains tax data set to study tax-based explanations of corporate payout for a panel of 6,035 firms from 25 countries for the period 1990–2008. We find robust evidence that the tax penalty on dividends versus capital gains corresponds closely with firms’ propensity to pay dividends and repurchase shares, and with the amount of dividends and shares repurchased. Our coefficient estimates suggest a smaller tax effect than reported in recent single-country, single-event studies. Instead, our results correspond more closely with historic long-term estimates of the elasticity of dividends.

Hide All
Allen, F.; Bernardo, A. E.; and Welch, I.. “A Theory of Dividends Based on Tax Clienteles.” Journal of Finance, 55 (2000), 24992536.
Alstadsæter, A., and Fjærli, E.. “Neutral Taxation of Shareholder Income? Corporate Responses to an Announced Dividend Tax.” International Tax and Public Finance, 16 (2009), 571604.
Ang, J. S.; Blackwell, D. W.; and Megginson, W. L.. “The Effect of Taxes on the Relative Valuation of Dividends and Capital Gains: Evidence from Dual-Class British Investment Trusts.” Journal of Finance, 46 (1991), 383399.
Auerbach, A. J. “Wealth Maximization and the Cost of Capital.” Quarterly Journal of Economics, 93 (1979), 433446.
Auerbach, A. J., and Hassett, K. A.. “On the Marginal Source of Investment Funds.” Journal of Public Economics, 87 (2002), 205232.
Baker, M. P.; Stein, J. C.; and Wurgler, J.. “When Does the Market Matter? Stock Prices and the Investment of Equity-Dependent Firms.” Quarterly Journal of Economics, 118 (2003), 9691006.
Baker, M. P., and Wurgler, J.. “A Catering Theory of Dividends.” Journal of Finance, 59 (2004a), 11251165.
Baker, M. P., and Wurgler, J.. “Appearing and Disappearing Dividends: The Link to Catering Incentives.” Journal of Financial Economics, 73 (2004b), 271288.
Becker, B.; Ivković, Z.; and Weisbenner, S.. “Local Dividend Clienteles.” Journal of Finance, 66 (2011), 655683.
Bell, L., and Jenkinson, T.. “New Evidence of the Impact of Dividend Taxation and on the Identity of the Marginal Investor.” Journal of Finance, 57 (2002), 13211346.
Bhattacharya, S. “Imperfect Information, Dividend Policy, and ‘The Bird in the Hand’ Fallacy.” Bell Journal of Economics, 10 (1979), 259270.
Blouin, J. L.; Ready, J. S.; and Shackelford, D. A.. “Dividends, Share Repurchases, and Tax Clienteles: Evidence from the 2003 Reductions in Shareholder Taxes.” Accounting Review, 86 (2011), 887914.
Bolster, P. J., and Janjigian, V.. “Dividend Policy and Valuation Effects of the Tax Reform Act of 1986.” National Tax Journal, 44 (1991), 511518.
Bradford, D. F.The Incidence and Allocation Effects of a Tax on Corporate Distributions.” Journal of Public Economics, 15 (1981), 122.
Brav, A.; Graham, J. R.; Harvey, C. R.; and Michaely, R.. “Payout Policy in the 21st Century.” Journal of Financial Economics, 77 (2005), 483527.
Brav, A.; Graham, J. R.; Harvey, C. R.; and Michaely, R.. “The Effect of the May 2003 Dividend Tax Cut on Corporate Dividend Policy: Empirical and Survey Evidence.” National Tax Journal, 61 (2008), 381396.
Brown, C., and Efthim, K.. “Effect of Taxation on Equal Access Share Buybacks in Australia.” International Review of Finance, 5 (2005), 199218.
Brown, J. R.; Liang, N.; and Weisbenner, S.. “Executive Financial Incentives and Payout Policy: Firm Responses to the 2003 Dividend Tax Cut.” Journal of Finance, 62 (2007), 19351965.
Chetty, R., and Saez, E.. “Dividend Taxes and Corporate Behavior: Evidence from the 2003 Dividend Tax Cut.” Quarterly Journal of Economics, 120 (2005), 791833.
Chetty, R., and Saez, E.. “Dividend and Corporate Taxation in an Agency Model of the Firm.”American Economic Journal: Economic Policy, 2 (2010), 131.
Christoffersen, S. E.; Géczy, C. C.; Musto, D. K.; and Reed, A. V.. “Crossborder Dividend Taxation and the Preferences of Taxable and Nontaxable Investors: Evidence from Canada.” Journal of Financial Economics, 78 (2005), 121144.
Chung, D.; Isakov, D.; and Pérignon, C.. “Repurchasing Shares on a Second Trading Line.” Review of Finance, 11 (2007), 253285.
DeAngelo, H.; DeAngelo, L.; and Stulz, R. M.. “Dividend Policy and the Earned/Contributed Capital Mix: A Test of the Life-Cycle Theory.” Journal of Financial Economics, 81 (2006), 227254.
Demirguc-Kunt, A., and Maksimovic, V.. “Law, Finance and Firm Growth.” Journal of Finance, 53 (1998), 21072137.
Denis, D. J., and Osobov, I.. “Why Do Firms Pay Dividends? International Evidence on the Determinants of Dividend Policy.” Journal of Financial Economics, 89 (2008), 6282.
De Ridder, A. “Share Repurchases and Firm Behaviour.” International Journal of Theoretical and Applied Finance, 12 (2009), 605631.
Dewenter, K. L., and Warther, V. A.. “Dividends, Asymmetric Information, and Agency Conflicts: Evidence from a Comparison of the Dividend Policies of Japanese and U.S. Firms.” Journal of Finance, 53 (1998), 879904.
Dittmar, A. K. “Why Do Firms Repurchase Stock?Journal of Business, 73 (2000), 331355.
Djankov, S.; La Porta, R.; Lopez-de-Silanes, F.; and Shleifer, A.. “The Law and Economics of Self-Dealing.” Journal of Financial Economics, 88 (2008), 430465.
Edgerton, J. “Four Facts about Dividend Payouts and the 2003 Tax Cut.” International Tax and Public Finance, 20 (2013), 769784.
Fama, E. F., and French, K. R.. “Disappearing Dividends: Changing Firm Characteristics or Lower Propensity to Pay?Journal of Financial Economics, 60 (2001), 343.
Fenn, G. W., and Liang, N.. “Corporate Payout Policy and Managerial Stock Incentives.” Journal of Financial Economics, 60 (2001), 4572.
French, K. R., and Poterba, J. M.. “Investor Diversification and International Equity Markets.”American Economic Review, 81 (1991), 222226.
Goergen, M.; Renneboog, L.; and Correia da Silva, L.. “When Do German Firms Change Their Dividends?Journal of Corporate Finance, 11 (2005), 375399.
Graham, J. R., and Kumar, A.. “Do Dividend Clienteles Exist? Evidence on Dividend Preferences of Retail Investors.” Journal of Finance, 59 (2006), 13051336.
Grinblatt, M.; Keloharju, M.; and Linnainmaa, J.. “IQ and Stock Market Participation.” Journal of Finance, 66 (2011), 21212164.
Grinstein, Y., and Michaely, R.. “Institutional Holdings and Payout Policy.” Journal of Finance, 60 (2005), 13891426.
Hashimoto, M. Share Repurchases and Cancellation, Capital Market Trend Report 1998-17, Capital Market Research Group, Nomura Research Institute (1998).
Ince, O. S., and Porter, R. B.. “Individual Equity Return Data from Thomson Datastream: Handle with Care!Journal of Financial Research, 29 (2006), 463479.
Jensen, M. C. “Agency Costs of Free Cash Flow, Corporate Finance and Takeovers.” American Economic Review, 76 (1986), 323329.
Jensen, M. C., and Murphy, K. J.. “Performance Pay and Top-Management Incentives.” Journal of Political Economy, 98 (1990), 225264.
Julio, B., and Ikenberry, D. L.. “Reappearing Dividends.” Journal of Applied Corporate Finance, 16 (2004), 89100.
King, M. A. Public Policy and the Corporation. London: Chapman & Hall (1977).
Korkeamaki, T.; Liljeblom, E.; and Pasternack, D.. “Tax Reform and Payout Policy: Do Shareholder Clienteles or Payout Policy Adjust?Journal of Corporate Finance, 16 (2010), 572587.
La Porta, R.; Lopez-de-Silanes, F.; Shleifer, A.; and Vishny, R. W.. “Legal Determinants of External Finance.” Journal of Finance, 52 (1997), 11311150.
La Porta, R.; Lopez-de-Silanes, F.; Shleifer, A.; and Vishny, R. W.. “Agency Problems and Dividend Policies around the World.” Journal of Finance, 55 (2000), 133.
La Porta, R.; Lopez-de-Silanes, F.; Shleifer, A.; and Vishny, R. W.. “Investor Protection and Corporate Valuation.” Journal of Finance, 57 (2002), 11471170.
Lee, Y.-T.; Liu, Y.-J.; Roll, R.; and Subrahmanyam, A.. “Taxes and Dividend Clientele: Evidence from Trading and Ownership Structure.” Journal of Banking and Finance, 30 (2006), 229246.
Lie, E., and Lie, H. J.. “The Role of Personal Taxes in Corporate Decisions: An Empirical Analysis of Share Repurchases and Dividends.” Journal of Financial and Quantitative Analysis, 34 (1999), 533552.
Lintner, J. “Distribution of Incomes of Corporations Among Dividends, Retained Earnings, and Taxes.” American Economic Review, 46 (1956), 97113.
Miller, M. H., and Rock, K.. “Dividend Policy under Asymmetric Information.” Journal of Finance, 40 (1985), 10311051.
Mondria, J., and Wu, T.. “The Puzzling Evolution of the Home Bias, Information Processing and Financial Openness.” Journal of Economic Dynamics and Control, 34 (2010), 875896.
Moser, W. J. “The Effect of Shareholder Taxes on Corporate Payout Choice.” Journal of Financial and Quantitative Analysis, 42 (2007), 9911019.
Newey, W. K., and West, K. D.. “A Simple, Positive Semi-Definite, Heteroskedasticity and Autocorrelation Consistent Covariance Matrix.” Econometrica, 55 (1987), 703708.
Organisation for Economic Co-Operation and Development (OECD). StatExtracts (2011), Available from:, accessed Dec. 2011.
Oswald, D., and Young, S.. “What Role Taxes and Regulation? A Second Look at Open Market Share Buyback Activity in the UK.” Journal of Business Finance and Accounting, 31 (2004), 257292.
Papaioannou, G. J., and Savarese, C. M.. “Corporate Dividend Policy Response to the Tax Reform Act of 1986.” Journal of the Financial Management Association, 23 (1994), 5663.
Pattenden, K. and Twite, G.. “Taxes and Dividend Policy under Alternative Tax Regimes.” Journal of Corporate Finance, 14 (2008), 116.
Petersen, M. A. “Estimating Standard Errors in Finance Panel Data Sets: Comparing Approaches.” Review of Financial Studies, 22 (2009), 435480.
Pinkowitz, L. F.; Stulz, R. M.; and Williamson, R.. “Does the Contribution of Corporate Cash Holdings and Dividends to Firm Value Depend on Governance? A Cross-Country Analysis.” Journal of Finance, 61 (2006), 27252751.
Polity IV Project. Polity IV Data Series (University of Maryland, College Park, MD: INSCR Program (2010). Available online at, accessed Dec. 2011.
Poterba, J. M. “Tax Policy and Corporate Savings.” Brookings Papers on Economic Activity, 2 (1987), 455503.
Poterba, J. M. “Taxation and Corporate Payout Policy.” American Economic Review, 94 (2004), 171175.
Poterba, J. M., and Summers, L. H.. “New Evidence That Taxes Affect the Valuation of Dividends.” Journal of Finance, 39 (1984), 13971415.
Poterba, J. M., and Summers, L. H.. “The Economic Effects of Dividend Taxation.” In Recent Advances in Corporate Finance, Altman, E. and Subrahmanyam, M., eds. Homewood, IL: Dow Jones-Irwin Publishing (1985).
Rau, P. R., and Vermaelen, T.. “Regulation, Taxes, and Share Repurchases in the United Kingdom.” Journal of Business, 75 (2002), 245282.
Ross, S. A. “The Determination of Financial Structure: The Incentive-Signalling Approach.” Bell Journal of Economics, 8 (1977), 2340.
Rydqvist, K.; Spizman, J.; and Strebulaev, I.. “The Evolution of Aggregate Stock Ownership.” SSRN Working Paper (2009).
Sarig, O. “A Time-Series Analysis of Corporate Payout Policies.” Review of Finance, 8 (2004),515536.
Shleifer, A., and Vishny, R. W.. “Large Shareholders and Corporate Control.” Journal of Political Economy, 94 (1986), 461488.
Skinner, D. J. “The Evolving Relation between Earnings, Dividends, and Stock Repurchases.” Journal of Financial Economics, 87 (2008), 582609.
Spamann, H. “The ‘Antidirector Rights Index’ Revisited.” Review of Financial Studies, 23 (2010), 467486.
Stephens, C. P., and Weisbach, M. S.. “Actual Share Reacquisitions in Open-Market RepurchasePrograms.” Journal of Finance, 53 (1998), 313333.
Tesar, L. L., and Werner, I. M.. “Home Bias and High Turnover.” Journal of International Money and Finance, 14 (1995), 467492.
Van Rooij, M.; Lusardi, A.; and Alessie, R.. “Financial Literacy and Stock Market Participation.” Journal of Financial Economics, 101 (2011), 449472.
Von Eije, H., and Megginson, W. L.. “Dividends and Share Repurchases in the European Union.” Journal of Financial Economics, 89 (2008), 347374.
Wu, C. “Taxes and Dividend Policy.” International Review of Economics and Finance, 5 (1996),291305.
Recommend this journal

Email your librarian or administrator to recommend adding this journal to your organisation's collection.

Journal of Financial and Quantitative Analysis
  • ISSN: 0022-1090
  • EISSN: 1756-6916
  • URL: /core/journals/journal-of-financial-and-quantitative-analysis
Please enter your name
Please enter a valid email address
Who would you like to send this to? *


Full text views

Total number of HTML views: 3
Total number of PDF views: 250 *
Loading metrics...

Abstract views

Total abstract views: 1254 *
Loading metrics...

* Views captured on Cambridge Core between September 2016 - 25th March 2018. This data will be updated every 24 hours.